Strategic decision-making in transportation and supply chain management

A transportation manager must be able to understand the risks regarding transportation and the supply chain at both the micro- and the macro-level. The macro view will include such aspects as freight flow and network design, appropriate transportation modes over the long-term with respect to the transport flow (inbound vs. outbound, for example). Volume, seasonality, and carrier-sourcing are decisions that will impact the development of the long-term transportation strategy as Hoek (2000) notes. At the micro-level, managers have to make daily lane operation decisions, with respect to carrier consolidation, flow consolidation and so on. Managers have to be able to manage flows on a daily basis to maximize the use of transports. For example, an inbound load arrives from NYC on the same day an outbound load is scheduled to leave the port—the manager can arrange for the inbound carrier to depart with the outbound load. Strategizing transportation and the supply chain is one of the most important aspects of production and getting goods to market. This paper will discuss the strategic decisions a transportation manager must make. Transportation Strategy & Supply Chain Negotiating with carriers is a big part of the strategic transportation management process. Many carriers will be willing to negotiate the rate of an outbound load if only to avoid heading home without any freight at all. Transportation managers have to be mindful, however, that some carriers will refuse to move unless their freight is at capacity. Less than volume loads may be held back until the transport is full: carriers want to maximize profits just like producers and sellers do. So a load that is destined for another part of the country may be delayed if it does not reach capacity for the carrier, and that could disrupt the supply chain downstream. This means that managers have to be aware of what carriers are doing, whether they are ready to go or whether they are waiting to move (Goldsby, Iyengar & Rao, 2014).
Transportation managers also have to think of proper channels when it comes to the supply chain. For example, there are six factors that a transportation manager would need to consider in determining the appropriate channel of distribution when moving products to a new market: Cost—which refers to the costs of establishing channels of distribution, both direct and indirect costs. Capital—which refers to the amount of capital required to maintain the distribution channel, especially with respect to costs added to the product as a result of expenses accrued through problems or inefficiencies in the distribution network, which could harm the company’s reputation. Control—which refers to the level of control that the company can have over the distribution channel; typically, the more control the company wields, the higher the expense. Coverage—which refers to the extent to which a local distribution network is able to reach the various markets in the country; for a company looking to establish transport and distribution channels in a foreign country, the logistics of where channels lead and whether there are transports available to move from one market to the next would have to be decided. Character—which refers to the trustworthiness and reputation of the distributor: for any type of business relationship, it is important that the partners be credible and have good characters; thus, a transportation manager will want to maintain good relationships with ethical carriers. Continuity—which refers to the need for a company to have stability in its operations so as not to upset the market; a company that is constantly altering its distribution network risks failing to get products to market in an efficient manner, which in turn opens the door to competitors; therefore, a transportation manager will have to be mindful of how disruptions in transportation can cost the company money in the long-term and not only just in the immediate- or short-term. The identifying of proper channels can make or break the performance of the transportation manager’s agenda—so this is especially important to configure and strategize. As Brown and Day (1981) pointed out, conflicts can arise among channels, and managers have to be cognizant of these challenges as well as the strategies that can be employed to overcome them.
Part of that process will also depend upon choosing the right transport mode and the right carrier. Deciding between rail, truck, sea or air can make a big difference on the company’s bottom line—but there is a cost/benefit ratio with each that has to be assessed. Likewise, there are risks and rewards associated with the various modes of transportation. Sea lanes can be blocked and ports can become restricted: loads can be left waiting at sea for days, weeks and sometimes even months in some of the worst-case scenarios (Lewis, Erera, Nowak & Chelsea, 2013). In today’s unstable global economy, there is also the risk of terrorist attack disrupting ports, lanes, supply chains and modes of transportation and distribution channels as well—and that must be considered by the transportation manager as well (Richardson, 2004).
Collaborative transportation management is another strategic option that transportation managers can utilize (Esper & Williams, 2003). As Esper & Williams (2003) point out, collaborative transportation management focuses on “collaborative planning, forecasting and replenishment,” which “requires trading partners to extend collaboration to execution through the use of technology” (p. 55). Technology can play a big role in developing a transportation management strategy by automating services between partners who assist in the collaborative process. This can help to keep transport modes going more routinely by moving order forecasts into shipping forecasts and thus better ensuring that shipments are fulfilled and delivered on time. Forecasting models can be applied through the use of logistics software, which is how technology can facilitate this process—and data streams from collaborators help to facilitate the collaborative process.
In conclusion, transportation managers have a lot to consider when it comes to developing strategies for transportation and the supply chain. There are macro- and micro- concerns that have to be considered; strategies relating to developing the right distribution channels; considerations regarding carriers and how to negotiate rates with them based on the volume they can carry, expected wait times, and inbound and outbound flows. Time plays a big factor in shipping but so too does capacity and sometimes shippers may have to pay a full load capacity rate just to get the carrier moving. Finding the right mode of transportation and carrier will require an assessment of the macro-level risks—such as trade wars or hot wars—that could cripple transportation lines. However, establishing good relationships with ethical carriers is, in the long-term, one of the most strategic decisions a transport manager can make. References